saving for collegehttp://www.wisebread.com/taxonomy/term/7789/all
en-USRethinking the 529 College Savings Plan Strategyhttp://www.wisebread.com/rethinking-the-529-college-savings-plan-strategy
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<p>For years we've been plowing money into 529 plans for our children (after, of course, contributing to our <a href="http://www.wisebread.com/the-10-step-staircase-to-a-comfortable-retirement" title="The 10-Step Staircase to a Comfortable Retirement">retirement</a> accounts as well), knowing how painful it's going to be 10-15 years out when we start getting those tuition bills. Generally, I've always been a strong proponent of relying heavily on stock market returns over long periods of time since they tend to outperform all other asset classes in periods of 10 years or longer (with 2000-2010 being a notable exception). As such, we have our 529 plan portfolios set up to invest in the most aggressive stock portfolios I could find, with the intention of shifting gears into more conservative stock/bond mix portfolios as the kids reach their teenage years in order to protect the principal in the event of a downturn like what we saw in 2008 and 2009. However, I'm starting to rethink this approach.</p>
<h3>529 Investing &mdash; Buying Tuition Credits or Investing in Stocks</h3>
<p>The reason I'm rethinking my strategy has little to do with the market downturn in 2008 and 2009. I'm not easily influenced by &quot;the recency effect,&quot; and I don't change long-term strategies unless there's a game-changing definitive driver. Rather, the input that's making me rethink our strategy is the trajectory of college tuition costs and the prospect that there's no relief in sight. (See also: <a href="http://www.wisebread.com/beyond-tuition-helping-out-with-college-expenses" title="Beyond Tuition: Helping Out With College Expenses">Beyond Tuition: Helping Out With College Expenses</a>)</p>
<p>The most recent <a href="http://money.cnn.com/2010/10/28/pf/college/college_tuition/index.htm?hpt=T2">survey of college tuition costs</a> from The College Board indicates that for the 2010-2011 school year, in-state tuition and fees will rise 7.9%, a staggering number. Private schools will see their costs increase 4.5%, but being mindful that private schools are generally 3-5 times more expensive than a top state school (and hence prohibitively expensive for us to fund fully), it's the state-school tuition hike that we're paying close attention to. Debt-burdened state budgets are facing an uphill battle, confronted with interest payments coming due mixed with declining tax revenues from a stagnant economy. I'd like to be more optimistic, but the pragmatist in me views this as a longer-term issue with the net result being continued lack of funding for public universities. As a result, it won't suprise me if we continue to see hikes of 7-9% for years to come.</p>
<h3>Changing Strategy &mdash; What if I Guess Wrong?</h3>
<p>By having prepared, and either saving a hefty amount in the 529 plan in a stock/bond mix or having purchased several tuition credits in advance, at least we will have taken a step in the right direction, no matter which option turns out to be the better investment. However, if it turns out that stocks average 2% or 12% over the next 15 years, buying tuition credits in advance will have either looked like a genius move or an overly conservative lost opportunity. In order to have it both ways, I'm actually going to look to start a new 529 plan to purchase tuition credits while retaining the aggressive market-based portfolio in my other plan. This way, I've mitigated my risk substantially. As far as weighting, I think I may start funneling money more heavily toward the credit option because the chances of college tuition costs dropping dramatically over time seem slim, as does the prospect of stocks having &quot;above average&quot; market performance, given that we're coming off a massive 75% gain from the pivot bottom in March 2009, and we're likely looking at very low single-digit GDP growth for years.</p>
<h3>Multiple 529 Plans Are Allowed</h3>
<p>Since most 529 plans don't have state residency requirements, you can usually have accounts with multiple state plans. Since I started with the Ohio savings plan due to their portfolio selection and low fees, I can actually do a state tuition credit plan in my home state. So, legally and practically speaking, my plan is achievable.</p>
<p>By buying credits each year that are expected to increase at 8% or more, that's essentially my &quot;investment return.&quot; What makes, say, an 8% return on college tuition credits so much more attractive than an 8% return in stocks is the lack of volatility. While stocks will continue to see-saw up and down with no guarantee of beating 8%, college tuition increases over the years. Thus buying tuition credits is the equivalent of earning a very high &quot;risk-free return,&quot; which is presently in the very low single-digits for savings, CDs, and Treasury bonds. The intangible risk we're already taking on is that we'll save too much if one or more of our children doesn't go to college. Fortunately, there's ample flexibility built into 529 plans to redistribute savings to other family members or withdraw the money with a penalty as a last resort.</p>
<p><em>What's your approach to 529 plan savings?</em></p>
<br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/darwins-money">Darwins Money</a> of <a href="http://www.wisebread.com/rethinking-the-529-college-savings-plan-strategy">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1">
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</div> </div><br/></br>Education & TrainingInvestment529 plancollegecollege education savingscollege planningsaving for collegesaving strategiesThu, 04 Nov 2010 12:00:09 +0000Darwins Money277778 at http://www.wisebread.comAre You Saving For Your Child's College Education?http://www.wisebread.com/are-you-saving-for-your-childs-college-education
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<p>Are you worried about <a href="http://www.thedigeratilife.com/blog/index.php/2009/07/27/savings-account-rates-high-returns/">savings account rates</a> and whether your investments are keeping up with your financial expectations?&nbsp; That perhaps your money isn't stretching far enough to fund some of your future financial goals?&nbsp;&nbsp;&nbsp;Well you're not alone.&nbsp; There is one financial goal in particular, that looms heavily upon those of us with children: <strong>increasing costs tied to the call of higher education and college.&nbsp; </strong></p>
<p>Lately, the issue of higher tuition rates has occupied the news; we heard of the disruption that took place at U.C. Berkeley when regents announced rising fees in the horizon.&nbsp; It can't be helped really -- it's one of those things that will hold true just like death and taxes do: rising college costs have always been a rite of passage for all of us -- parents and kids alike!&nbsp; (Check out our <a href="http://www.wisebread.com/college"><strong>College Financial Aid How-to&nbsp;Guide</strong></a> for ideas on how to deal with the rising cost of higher education.)</p>
<p>But I'd like to bring up the notion that perhaps not all parents are intending to save for their children's education.&nbsp; No, they've decided not to set up that Coverdell ESA with an online stock broker or mutual fund company. There may be various reasons why this is the case and it's something I'd like to explore a little; I'd also like to determine how some well-meaning families are coping with the pressures of paying for college.</p>
<h3>7 Reasons Why Parents&nbsp;May Decide Not To Save For College</h3>
<p>I am making these points mainly to elicit discussion.&nbsp; But do you know anyone who has decided not to save for college?&nbsp; And if so, why don't they?&nbsp; I thought about it a bit and came up with a few possible reasons (or &quot;excuses&quot;):<br />
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1. You feel that you don't have enough resources.</strong></p>
<p>A common reason for not saving for college is that you just don't have enough money to fund competing financial goals.&nbsp; The rule of thumb here is that you should first fund your retirement accounts before you contribute to your child's <a href="http://www.wisebread.com/college/section-529-plans">529 college savings plan</a>. The reason?&nbsp; It's more important to ensure that you take care of your own future to avoid having others worry about you in your old age.&nbsp; Your kids can qualify for financial aid, but it will be tough for you to handle any shortfalls in your retirement years if you don't have the means or the savings to live on.&nbsp; Now if financial resources are the issue for you, you may be assured by the knowledge that there are easier ways to get others involved with your savings goals: perhaps an avenue like a 529 account or a free savings account like SmartyPig that allows others to help contribute to your goals may be helpful.&nbsp; It's something worth checking out.</p>
<p><strong>2. Some kids are independent and make their own decisions.</strong></p>
<p>I believe that not everyone is necessarily cut out to go to college.&nbsp; It's also often the case that people in the cusp of adulthood will feel that they aren't ready to enter college at a certain point in their lives.&nbsp; Of course, they may always change their minds later, and that's something that they can decide for themselves.&nbsp; Now there are kids that only need a little motivation to be able to make it through school.&nbsp; If you're a parent, you'll know whether your child is the type whom you should trust with this important decision; and based on how you gauge your child, some of you may realize that your child may not require you to cover 100% of their educational needs.</p>
<p><strong>3. Some parents expect their kids to pay their way.</strong></p>
<p>Maybe it's a lesson in life that they'd like to impart to their kids, but many parents make the conscious decision to have their kids pay their way through school.&nbsp; In the past, by cobbling together various financing resources such as <a href="http://www.wisebread.com/how-to-win-small-scholarships-for-a-big-payoff">college scholarships</a>, <a href="http://www.wisebread.com/college/financial-aid">financial aid</a>, work and <a href="http://www.wisebread.com/college/federal-student-loans">student loans</a>, a student can make their way through college on their own.&nbsp; But in recent years, with college costs much more expensive, leaving the financial burden for college solely on your child may no longer be a reasonable option.&nbsp; Perhaps your children's efforts would probably be better spent attaining a full-time college education and then paying you back once they get a secure full-time job in their chosen career.</p>
<p><strong>4. Kids of veterans may receive reimbursements of educational costs.</strong></p>
<p>Children of veterans are entitled to have 70 percent of their college education reimbursed.&nbsp; However, parents must still pay for the first semester of college in full. Once the child attains a grade of C or better in all subjects, a designated percentage of the tuition is reimbursed.&nbsp; Parents can roll these reimbursements into paying for the next semester but still need to come up with the remaining money for their kids' education.&nbsp; Again, 529 programs such as the one offered by the College Advantage Ohio 529 Savings Plan may help you build up some of the savings needed to support your child.&nbsp; Veteran parents can save more on their children's schooling by remaining apprised of the latest programs available to them.&nbsp;</p>
<p><strong>5. Certain families don't see the value of higher education.</strong></p>
<p>Unfortunately, not all people find value in going to college. Those folks who are particularly entrepreneurial by nature may think that their kids may be better off getting the experience from the school of hard knocks, say by working in the family business.&nbsp; They may value life experiences above those that can be obtained from a structured, academic environment.&nbsp; In this case, it's all about the family's values.&nbsp;</p>
<p><strong>6. Some parents have lowered expectations.</strong></p>
<p>If a child is not doing that well in primary school, his or her parents may end up having lower expectations of the child. Without noticing the potential, some parents may become discouraged about helping their kids pursue a higher education.&nbsp; It's sad, but could they be unwilling to take the risk of investing in their child's education?&nbsp; I believe that no matter what, we shouldn't give up on our kids as surprising transformations can happen in people.<br />
<strong><br />
7. There's the belief that what's good for the parent is also good for the chld.</strong></p>
<p>There are some parents who didn't finish college or never attended college, and because of their own experiences, they may not feel compelled to have their kids acquire an education on their dime.&nbsp; But fortunately, there are many parents who don't think this way, despite the fact that they've never made it into the hallowed halls of academia.&nbsp; There are many parents who value college highly and look upon it as the holy grail for the next generation; therefore, they do what they can to encourage their children to get a degree.&nbsp; These are the stories that should inspire us to think about how we can push forward to better ourselves and the plight of the youths in our lives. </p>
<p>Having the opportunity to attend college is priceless and even when resources are low, there may be ways to save up for this important phase in your child's life.&nbsp; If there's a will, there's a way.</p>
<br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/silicon-valley-blogger">Silicon Valley Blogger</a> of <a href="http://www.wisebread.com/are-you-saving-for-your-childs-college-education">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2">
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</div> </div><br/></br>Investment529 savings accountchildren's educationcollege educationinvestmentsaving for collegeMon, 04 Jan 2010 17:00:09 +0000Silicon Valley Blogger4373 at http://www.wisebread.comSection 529 Planshttp://www.wisebread.com/college/section-529-plans
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<p>For parents interested in setting aside money towards <a title="Calculating the Cost of College" href="http://www.wisebread.com/college/cost-of-college">college expenses</a> for their children, a Section 529 account is one of the best ways to do so. A Section 529 plan offers an opportunity to invest money for your child's college tuition tax free. A Section 529 plan also offers the alternative of prepaying your child's tuition at today's prices, rather than the higher costs you can expect when your child is ready to enroll. It's also easier to open a Section 529 account than many other <a title="How to Save Money for College" href="http://www.wisebread.com/college/saving-for-college">college savings accounts</a>.</p>
<h2>529 Prepaid Tuition Accounts</h2>
<p>The most important decision when it comes to choosing a Section 529 plan is whether you'd prefer to prepay tuition or to simply save money towards education expenses. That's because there's actually two different types of Section 529 plans.</p>
<p>The option of prepaid tuition plans can provide an extra benefit if your child won't be attending college in the near future: because the inflation of college expenses is growing faster than inflation for normal expenses and the cost of college is expected to continue to increase, paying tuition at today's rates can translate into significant savings.</p>
<p>Section 529 plans are offered by individual states, and the exact options for each state can vary. In many cases, you can choose a Section 529 plan from outside your state of residence, although the benefits may not be the same if you're outside the state operating the plan.</p>
<h2>529 Savings Accounts</h2>
<p>The alternative to a prepaid tuition plan is to contribute money to a Section 529 account and then invest it through the account. Depending on the investment options associated with your state's plans, you may be able to earn a return on your money that more than matches the savings offered by prepaying tuition.</p>
<p>There are some limits to the investment options available to you with a Section 529 account. Where some investment accounts may have a wide variety of investment options, many Section 529 plans are limited to specific mutual funds. In most cases, the state operating the Section 529 plan will actually turn over management of it to a mutual fund company. The funds available to that company are typically the only funds you'll be able to choose from.</p>
<p>Most Section 529 savings plans offer investment option based on your child's age. As your child gets older, the investments become more conservative, in order to be sure that the money you need will be available when your son or daughter is ready for college.</p>
<h2>529 Tax Benefits</h2>
<p>When you deposit money into a Section 529 account, you'll be using after tax dollars. You've already paid taxes on that money just by paying your yearly income tax. The money in your Section 529 account grows tax-deferred and, assuming that you only withdraw the money in order to pay for educational expenses, you won't be required to pay taxes on your earnings. These advantages make it possible to maximize the return on the money you've saved for your child's education. Normally, any money you earned from an investment would be taxable the moment you withdraw it, but you get to keep the money that would otherwise go to taxes and apply it to your son or daughter's education.</p>
<p>Many states also offer deductions on your state tax return for any money you saved in a Section 529 account. Typically, the deduction is limited to parents who invest in an instate Section 529 plan. You may not be eligible for the deduction if you use an out-of-state plan, often making the in-state option the best option just because of the tax deduction.</p>
<h2>The Pros and Cons</h2>
<p>There are other savings options for parents who want to put away money towards their child's education expenses, such as a <a title="Coverdell Educational Savings Account" href="http://www.wisebread.com/college/coverdell-education-savings-account">Coverdell Education Savings Account</a>. While such accounts do have some benefits to recommend them, in many cases, a Section 529 plan has many advantages. One of the most important factors is the amount of money you can put away in each account. With a Coverdell ESA, you face a limit of $2,000 per year. Unless Congress renews legislation affecting the Coverdell ESA, that limit may drop to $500 per year. A Section 529 savings account does have an upper limit on the amount that you can contribute per recipient: depending on that state, the lifetime limit ranges from $100,000 to $300,000.</p>
<p>Unfortunately, one advantage of a Coverdell ESA is not available to parents using Section 529 accounts. Money saved through a Section 529 plan can only be used towards college or graduate school expenses. Some other accounts, such as the Coverdell ESA, allow parents to withdraw funds to use for pre-college expenses, such as tuition at a private elementary or high school.</p>
<p>Most colleges will take the amount available in your son or daughter's Section 529 account when calculating his or her <a title="Financial Aid for College" href="http://www.wisebread.com/college/financial-aid">financial aid</a> package. The account can reduce the total number of financial aid; however, colleges similarly account for other college savings accounts. The Section 529 plan does have the benefit of usually being listed as a parental asset, rather than an asset of the student applying for financial aid. Some college savings accounts are considered student assets and can reduce your child's available financial aid far more than an account listed as a parental asset. Some state colleges will also leave money saved in an in-state Section 529 plan out of their financial aid calculations, essentially offering your child a larger financial aid package.</p>
<h2>Setting Up a 529 Account</h2>
<p>No matter whether you choose a Section 529 savings account or a prepaid tuition plan for your child, the logistics of creating the account are similar. You can open the account and name a beneficiary &mdash; your child, typically, although you can name other beneficiaries &mdash; who will be able to use the money in the account once he or she is ready for college. The Section 529 account does not have to be opened by a parent. Not only can other relatives open the account, but so can individuals who aren't related to the beneficiary.</p>
<p>Similarly, anyone can contribute to a Section 529 savings plan. For instance, if your child's grandparents wanted to save money towards your son or daughter's college expenses, they could easily do so. However, particularly large deposits (over $12,000), from you or anyone else, can trigger a gift tax. There is a special provision for Section 529 plans, allowing an individual to make five years worth of deposits in one year, totaling up to $60,000.</p>
<p>You can set up direct deposit to automatically add money to a Section 529 plan in most states. This approach can make it very easy to continue saving money towards your child's education without having to plan to transfer money or take other steps. There is no deadline for contributing to a Section 529 account.</p>
<h2>Eligible Expenses</h2>
<p>Once your son or daughter heads off to college, you can request a distribution from a Section 529 savings plan on behalf of your child. In order to avoid taxes or penalties, the disbursed money must be used for qualified educational expenses, as defined by the IRS. Those expenses are limited to tuition, room and board, books and supplies required by your courses and computers or laptops (but only if the college requires them). Your child must also be enrolled at least half-time in order to use funds from your Section 529 account for room and board.</p>
<p>If you choose to withdraw money from a Section 529 savings plan for purposes other than educational expenses, that withdrawal will be subject to taxes and a 10 percent penalty. If, after your child has completed college, there is money left in the account, it can be transferred to a new beneficiary.</p>
<br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/thursday-bram">Thursday Bram</a> of <a href="http://www.wisebread.com/college/section-529-plans">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3">
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<p>Over the years, Uniform Transfers to Minors and Uniform Gifts to Minors custodial accounts (also known as UGMA and UTMA accounts) have become less popular than college savings options. The change is due to the increasing popularity of <a href="http://www.wisebread.com/ccollege/coverdell-education-savings-account" title="Coverdell Education Savings Accounts ESA">Coverdell Education Savings Accounts (Coverdell ESA)</a> and <a href="http://www.wisebread.com/college/section-529-plans" title="All About Section 529 Prepaid Tuition and College Savings Account Plans">Section 529 plans</a>, both of which were created by the government specifically to offer tax advantages for parents <a href="http://www.wisebread.com/college/saving-for-college" title="How to Save Money for College">saving for their child's education</a>.</p>
<h2>UGMA and UTMA Accounts Today</h2>
<p>You can choose to create a custodial account in order to save money toward your child's college expenses. You can invest any money contributed to the account, allowing your child to earn additional money toward his or her education. You can choose from a wide variety of investment options with an UGMA or UTMA account, unlike with some other college savings vehicles. For instance, if you choose to invest in growth stocks through the account, your child may be able to earn more than with a Section 529 plan.</p>
<p>However, earnings from an UGMA or an UTMA custodial account are taxable. In the past, earnings on custodial accounts were taxed at the child's rate &mdash; typically, a child is in a significantly lower tax bracket than a parent, offering tax savings. However, due to changes in the tax laws in 2006, children cannot take advantage of their own lower tax brackets until they turn 18. Taxes on an UGMA or UTMA custodial account will be at your rate, rather than your child's. Furthermore, in many cases, if your child is a full-time student and your dependent, the custodial account may still be subject to taxes at your level.</p>
<h2>Custodial Account Limits</h2>
<p>With an UGMA or UTMA custodial account, you can contribute up to $12,000 to your child's account in any given year without triggering the gift tax, as long as that contribution is meant to pay for future higher education expenses. Other individuals can also make contributions up to the same limit: if a grandparent wanted to contribute to an UTMA or UGMA account, the limit is still $12,000 per individual. These limits put less constraints on what you and your extended family can save for your child's education than other college savings vehicles.</p>
<p>In some cases, a relative can simply contribute investments or securities to a custodial account, rather than contributing money. While such a gift may not be particularly advantageous to a child in terms of taxes, it can have positive income tax considerations for the giver. The specifics of laws governing UGMA and UTMA accounts can vary by state.</p>
<h2>Control of Custodial Accounts</h2>
<p>One consideration that may affect whether you'd prefer to use an UGMA or UTMA custodial account is the fact that upon becoming an adult, your child will have full control the account. Depending on the state, custodial accounts are turned over when your child turns either 18 or 21. Technically, this means that if your child chose not to use those funds toward college expenses, your options would be limited.</p>
<p>Furthermore, since UGMA and UTMA accounts are legally the property of your child, they can be problematic when applying for financial aid. Most colleges weigh assets belonging to students more heavily when considering what a student and his or her parents will be able to pay toward college expenses. That means that a custodial account meant to help your child with paying for college can actually minimize the amount of financial aid he or she will qualify for. In contrast, a Section 529 plan or a Coverdell Education Savings Account is considered a parental asset and does not have as significant an impact on financial aid packages.</p>
<br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/thursday-bram">Thursday Bram</a> of <a href="http://www.wisebread.com/college/utma-ugma-custodial-accounts">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-4">
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<span class="field-content"><a href="http://www.wisebread.com/college/college-savings-bonds">Series I and Series EE U.S. Savings Bonds</a></span>
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</div> </div><br/></br>Career and Incomecollegeeducationsaving for collegeTue, 24 Nov 2009 20:06:22 +0000Thursday Bram6291 at http://www.wisebread.comSeries I and Series EE U.S. Savings Bondshttp://www.wisebread.com/college/college-savings-bonds
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<p>U.S. savings bonds can provide one of the simplest approaches to <a href="http://www.wisebread.com/college/saving-for-college" title="How to Save Money for College">saving for college</a>. Rather than setting up an account for your child under one of the many college savings plans (like a <a href="http://www.wisebread.com/college/section-529-plans" title="All About Section 529 Prepaid Tuition and College Savings Plans">Section 529 Plans</a>, <a href="http://www.wisebread.com/college/coverdell-education-savings-account" title="All About Coverdell Education Savings Accounts">Coverdell ESAs</a>, or <a href="http://www.wisebread.com/college/utma-ugma-custodial-accounts" title="All" about="" utma="" ugma="" custodial="" accounts="">UTMA/UGMA Accounts</a>), you can simply buy Series I and Series EE savings bonds. When you cash them in to pay for your child's college expenses, you will be able to do so without any earnings on those bonds being subject taxes.</p>
<h2>Buying Bonds</h2>
<p>Both Series I and Series EE bonds can be bought directly from the U.S. Treasury at <a href="http://TreasuryDirect.gov">TreasuryDirect.gov</a>. Series EE bonds are purchased for half the monetary value they will be worth at the end of their maturity period. Series I bonds are bought in specific denominations, ranging from $50 to $10,000. Their value grows according to current interest rates. For both types of bonds, the annual rate of return is typically between four and six percent.</p>
<p>Bonds are a particularly safe investment. They offer a lower rate of return than other college savings options, but they are less risky. While there is a chance that the investments in a Section 529 plan could lose value, U.S. savings bonds are secure.</p>
<p>Furthermore, you can buy bonds for as little as $25. If your income varies or you are not in a position to make regular contributions to an educational savings account, purchasing bonds can be a practical option. You can make a purchase any time you choose, which can make saving for your child's education more convenient. Your earnings on each bond grow tax-deferred until you're ready to cash it in. There is an upper limit to the amount of bonds you can buy in any given year (you can purchase $30,000 worth of each Series I and Series EE savings bonds each year). The upper limit is high enough that it isn't a concern for most people; however, spouses can each purchase separately if they so choose.</p>
<h2>Using Bonds for College Expenses</h2>
<p>The interest earned on Series I and Series EE is fully exempt from both federal and state income taxes when you use it for qualified college expenses for your child, yourself, or your spouse, assuming that you qualify. Qualification is phased out for higher-income tax brackets: if you are single, your income must be under $78,100. If you are married, you and your spouse's combined earnings must be less than $124,700.</p>
<p>In order to cash bonds in for college expenses, you must apply your earnings from that bond to tuition. Unfortunately, the regulations setting out the qualified educational expenses for Series I and Series EE bonds are stricter than for other college saving vehicles.</p>
<p>As long as you own Series I and Series EE savings bonds, rather than your child, the bonds will have limited affect on your child's ability to qualify for financial aid. If, however, the bonds are also in your child's name, they will be considered student assets which can limit the amount of financial aid your child may be eligible for. Furthermore, the savings bonds cannot be solely in your child's name. They must be held in a parent's name in order to qualify for the exemption.</p>
<p>There are a few other rules that govern using savings bonds to pay for your child's tuition, although they are generally not an issue for most parents. You, as the purchaser, must be over the age of 24 when you purchase the bond. You must also hold the bond for at least six months between purchasing it and cashing it in. In comparison to other options for saving money for your child's college expenses, savings bonds are simple to cash in and use.</p>
<br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/thursday-bram">Thursday Bram</a> of <a href="http://www.wisebread.com/college/college-savings-bonds">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-5">
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</div> </div><br/></br>Career and Incomecollegeeducationsaving for collegeTue, 24 Nov 2009 19:38:45 +0000Thursday Bram6292 at http://www.wisebread.comCoverdell Education Savings Accountshttp://www.wisebread.com/college/coverdell-education-savings-account
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<p>The Coverdell Education Savings Account (also known as the Coverdell ESA) is a college savings option created by the federal government. It allows you to save money towards your child's <a href="http://www.wisebread.com/college/saving-for-college" title="How to Save Money for College">college expenses</a> with tax advantages. A Coverdell also offers one other benefit over other college savings vehicles: unlike the <a href="http://www.wisebread.com/college/section-529-plans" title="Section 529 Pre-Paid Tuition and College Savings Plans">Section 529 plans</a>, money in a Coverdell ESA can be used for educational expenses before your child is in college. You can take tax-free withdrawals from the account to help pay for expenses related to elementary, middle, and high school, such as tuition at a private school.</p>
<h2>The Education IRA</h2>
<p>Because the Coverdell ESA has certain similarities to an individual retirement account, or an IRA, it is sometimes referred to as the Education IRA. Each year, you can contribute up to $2,000 to your child's account. Just like with an IRA, these contributions are made with after-tax dollars &mdash; you've already paid income tax on the money that you're depositing into a Coverdell ESA. Through the investments you make with the funds in the ESA, your money will grow tax-free until your child is ready to start college. At that point, the money can be withdrawn without paying taxes, as long as it's used to pay for qualified educational expenses.</p>
<p>There are also eligibility requirements for opening a Coverdell ESA. If you file your taxes alone, your income must be under $95,000 in order to open an account. If you file as married, you and your spouse must earn less than $190,000. Grandparents can also open Coverdell ESAs.</p>
<h2>Using a Coverdell ESA</h2>
<p>You can establish a Coverdell ESA, naming your child as the designated beneficiary, as long as he or she is under the age of 18. Once the account is established, you can add contributions to it, although all contributions for the previous year must be made before your tax filing deadline. If a child has more than one Coverdell ESA &mdash; such as one created by a parent and another by a grandparent &mdash; the $2,000 limit to contributions covers all accounts.</p>
<p>When your child starts at college, you can take distributions from a Coverdell ESA to be used towards tuition, room, board, computers, books, tutoring, and even transportation. While the IRS requires you to use the money toward qualified educational expenses, the list of options is more flexible than with saving accounts like a Section 529 plan. Most colleges will take the money available in your Coverdell ESA into account when calculating financial aid for your son or daughter. However, as long as you are designated as the owner, a college will only count 5.64 percent of the assets in the account against financial aid, increasing the amount of financial aid your child can qualify for.</p>
<p>Once your child has completed college, you may find that there is still money in your Coverdell ESA. You can roll the account over to another family member who needs help with educational expenses. If you have two or more children, a Coverdell ESA can be an easier way to manage saving money because you can move the account over to another child if need be. Otherwise, all money must be distributed from the Coverdell ESA by the time your child reaches the age of 30.</p>
<h2>The Future of Coverdell ESAs</h2>
<p>The current legislation setting contribution limits for a Coverdell ESA is set to expire after 2010. At this time, it is unclear whether Congress will extend that legislation. If it is not extended, the limit on yearly contributions will fall to $500 a year, making Coverdell ESAs less useful when compared to other options, such as Section 529 plans.</p>
<p>There are a few other drawbacks that you should consider before opening a Coverdell ESA. If your child is older and will need money for college fairly soon, the $2,000 limit may not allow you save enough money in time to cover those college expenses. If, however, you are starting your college planning while your child is young, there will be enough time for that money to grow.</p>
<br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/thursday-bram">Thursday Bram</a> of <a href="http://www.wisebread.com/college/coverdell-education-savings-account">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-6">
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</div> </div><br/></br>Career and Incomecollegeeducationsaving for collegeTue, 24 Nov 2009 19:23:15 +0000Thursday Bram6290 at http://www.wisebread.comHow to Save Money for Collegehttp://www.wisebread.com/college/saving-for-college
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<p>The <a title="Calculating the Cost of a College Education" href="http://www.wisebread.com/college/cost-of-college">cost of attending college</a> continues to rise. In order to handle those costs, you may be considering saving for your child's college education long before he or she is ready to enroll in school. There are several different options for building a college fund that will cover part or all of a student's college expenses. It can be confusing to sort through the different savings and investment options. Deciding between alternatives like a prepaid tuition plan or a savings bond isn't always a clear choice.</p>
<p>In order to make that decision, it's crucial to understand the options you have, as well as how each option affects your finances now and your child's financial aid when he or she is ready to start college. Section 529 plans, Coverdell Education Savings Accounts, UGMA / UTMA custodial accounts and savings bonds can all be good options when it comes to saving for college, but it's important to find the best option for you and your family.</p>
<h2>Section 529 Plans</h2>
<p><a title="All About Section 529 Prepaid Tuition and College Savings Accounts" href="http://www.wisebread.com/college/section-529-plans">Section 529 plans</a> offer a way to save money for future college expenses with some very significant tax advantages. There are two types of Section 529 plans. You can choose a prepaid plan, which allows you to purchase tuition credits at today's rates, or you can use a savings plan, which allows you to invest your savings in mutual funds. In either case, when your child is ready to withdraw money from the 529 plan, the withdrawal will not be subject to federal income tax, as long as the money is spent on college expenses.</p>
<p>A prepaid plan can be a more useful option if you're taking a long-term approach to saving for college. By saving money through a prepaid Section 529 plan, the biggest benefit comes if the cost of tuition rises significantly. Tuition costs do tend to rise every year, but in the short-term, they may not rise enough to make prepaying tuition the best option. In contrast, a Section 529 savings plan allows you to invest in a mutual fund &mdash; your savings earn money as long as the market is doing well. However, many investments can earn more than those chosen for Section 529 plans. Section 529 plans have low risks associated with them, but also have lower earnings.</p>
<p>That low risk comes out of the fact that both types of Section 529 plans are usually run by state governments. Any money you save through a Section 529 plan is generally considered very safe &mdash; the state running the plan would have to go bankrupt for your savings to be in danger. The only safer savings option is a U.S. government bond. Many states offer other incentives for choosing a Section 529 plan, as well. Some states go so far as to offer to match your contributions to your child's Section 529 plan, while others offer deductions or credits on your state income tax return.</p>
<h2>Coverdell Education Savings Accounts</h2>
<p>Another savings account option is a <a title="All About Coverdell Education Savings Accounts" href="http://www.wisebread.com/college/coverdell-education-savings-account">Coverdell Education Savings Account</a> (also known as a Coverdell ESA or an Education IRA). A Coverdell ESA can offer you more flexibility in saving for college than a Section 529 plan, although there are some limitations. With a Coverdell ESA, you are limited to contributing $2,000 each year to the account. However, you can use money saved in a Coverdell ESA for far more education expenses, including tuition while your child is still in elementary school, middle school, or high school. If you have two or more children, you may find a Coverdell ESA ideal: in the event that one of your children does not need the full amount you've saved for his or her college, you can transfer money to the Coverdell account of another family member.</p>
<p>If you plan to save more than $2,000 per year for your child's savings, a Coverdell ESA may not be the best option. However, it does have certain tax advantages that can make it more useful, despite the limits on savings. Any money that you invest grows tax deferred until you're ready to withdraw it &mdash; at which time, you can take it out tax free to use on education expenses. You can also choose investments for your child's Coverdell ESA from a much wider list of choices than for a Section 529 plan. Investments can include stocks, bonds, and mutual funds, which may provide an opportunity for a better rate of growth.</p>
<h2>UGMA / UTMA Custodial Accounts</h2>
<p>In the past, <a title="All About UTMA and UGMA Custodial College Savings Accounts" href="http://www.wisebread.com/college/utma-ugma-custodial-accounts">Uniform Transfers to Minors and Uniform Gifts to Minors custodial accounts</a> were a popular method to save for college. In order to create an UGMA or UTMA custodial account, you or another relative can open an account in your child's name. You can save money in your child's name and invest it so that it will continue to grow until he or she is ready to begin college. However, there are now few tax advantages associated with using a custodial account, compared to a Section 529 plan or a Coverdell ESA. Until 2006, accounts in a minor's name were taxed at the minor's rate, rather than his or her parents. Now, however, children cannot take advantage of their lower tax rates until they reach the age of 18. You may also face taxes on any earnings from investments in a custodial account, which is not true of other college savings options.</p>
<p>There is another drawback to using an UGMA or UTMA custodial account. While colleges do not count Section 529 plans or Coverdell ESAs as assets of a student applying for financial aid, custodial accounts are considered assets. That means that your child would receive less financial aid than may be necessary if the bulk of his or her college savings is in a custodial account.</p>
<h2>Series I and Series EE Savings Bonds</h2>
<p>While savings bonds do not necessarily provide the largest return on an investment if you're looking to increase the amount of money your child has available for college, they are one of the safest savings options out there. <a title="All About U.S. Savings Bonds for College" href="http://www.wisebread.com/college/college-savings-bonds">Series EE and I bonds</a>, in particular, can be useful in saving for college. When you cash a Series EE or I bond and use the money to pay for college expenses, the money you've earned on the bond is tax exempt, from both federal and state taxation.</p>
<p>Buying bonds is one of the simplest ways to save money for college. You don't need to open any kind of investment account in order to purchase a U.S. savings bond. In fact, you can buy them online through <a href="http://www.treasurydirect.gov">TreasuryDirect.gov</a>. If simplicity is important, Series I and Series EE savings bonds may be a useful option for you.</p>
<h2>Making the Decision</h2>
<p>According to the College Board, the current average cost of a year at a private college is $25,143. That number is projected to continue to rise &mdash; but that doesn't mean that you need to plan to pay all of it. Depending on your child's educational plans, options like attending a public university can bring down the price tag dramatically, as can starting at a two-year school and making the switch to a four-year school later on.</p>
<p><a title="College Financial Aid" href="http://www.wisebread.com/college/financial-aid">Financial aid</a> is also available for most families. Currently more than $143 billion is available in financial aid. While it's probably not a good idea to assume financial aid can pay for the full costs of college, it is reasonable to save what you can for your son or daughter's college expenses with the expectation that some student loans and other financial aid options will be available for your child.</p>
<p>However, colleges do take any college savings accounts you've used to save money for your child into account when determining how much financial aid to offer him or her. Each school can choose how to handle specific types of accounts. Section 529 plans and Coverdell ESAs are often listed as parental assets, which does allow students to receive more financial aid. UGMA and UTMA custodial accounts are usually considered to be student assets, however, reducing financial aid far beyond what a parental asset might. If you purchase saving bonds in your child's name, those bonds may be considered student assets; however, you can purchase Series I and Series EE savings bonds in your own name and still receive the tax advantages offered by using them for college expenses.</p>
<br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/thursday-bram">Thursday Bram</a> of <a href="http://www.wisebread.com/college/saving-for-college">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-7">
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</div> </div><br/></br>Career and IncomecollegeeducationHow-To Guidesaving for collegeWed, 21 Oct 2009 22:49:29 +0000Thursday Bram6293 at http://www.wisebread.com529 Plans for College Expenses: What’s Cool and What’s Quirkyhttp://www.wisebread.com/529-plans-for-college-expenses-what-s-cool-and-what-s-quirky
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<p>529 plans for college expenses are very cool but extremely quirky. Cool federal-tax benefits, which were temporary and set to expire in just a few years, have been made permanent by The Pension Protection Act of 2006 (USA). The quirkiness and murkiness remains, however, but is made much clearer by the kind folks at <a title="http://www.kiplinger.com" target="_blank" href="http://www.kiplinger.com">Kiplinger.com</a>, who have provided me (and anyone with an Internet connection) with some great resources,&nbsp;discussed here&nbsp;but&nbsp;awaiting your further perusal, beginning with these articles on <a title="http://www.kiplinger.com/magazine/archives/2007/09/529plans.html" target="_blank" href="http://www.kiplinger.com/magazine/archives/2007/09/529plans.html">saving for college</a> and <a title="http://www.kiplinger.com/features/archives/2007/08/best529s.html" target="_blank" href="http://www.kiplinger.com/features/archives/2007/08/best529s.html">529 college-savings plans</a>. &nbsp;</p>
<p>What are 529 plans? They are <a href="http://www.wisebread.com/college/saving-for-college" title="How to Save Money for College">college savings programs</a> created by individual states as authorized by Section 529 of the Internal Revenue Code. There are two kinds of 529s: prepaid tuition plans and college savings plans.</p>
<p>States sponsor programs and most outsource investment services to third-party firms such as Vanguard or T. Rowe Price. (The outsourcing of investment plans with pre-designed portfolios was a source of confusion and annoyance for me when I first started investigating these programs but the concept is similar to how employers offer 401(k) plans with multiple but finite investment plans that are designed and serviced by outside entities.)</p>
<p>The original intent for Section 529 rule, from what I can glean, was to provide a mechanism to prepay tomorrow&rsquo;s tuition at today&rsquo;s rates. Locking in tuition rates at a state-supported college or university (using a prepaid plan), though attractive, is not widely available. According to Kiplinger&rsquo;s <a title="http://www.savingforcollege.com/kiplinger/plan_details.php" target="_blank" href="http://www.savingforcollege.com/kiplinger/plan_details.php">529 plan locator</a>, only 18 states have prepaid plans (prepaid contracts or prepaid units / guaranteed savings) and, of those, only 5 have&nbsp;&quot;program benefits backed by the full faith and credit of the state&rdquo; with an additional 5 having other types of guarantees (according to&nbsp;one of the <a title="http://www.savingforcollege.com/kiplinger/plan_comparison.php?plan_question_ids[]=112&amp;page=compare_plan_questions" target="_blank" href="http://www.savingforcollege.com/kiplinger/plan_comparison.php?plan_question_ids[]=112&amp;page=compare_plan_questions">&quot;compare by questions&quot;</a> sections on Kiplinger's site,&nbsp;September 12, 2007).</p>
<p>If you are considering a private college or university, however, there is a prepaid program: <a title="http://www.independent529plan.org/" target="_blank" href="http://www.independent529plan.org/">Independent 529 Plan</a> sponsored by Tuition Plan Consortium LLC and managed by TIAA-CREF Tuition Financing Inc. According to the plan&rsquo;s website, contracts with private colleges and universities specify that units bought at a discount today must be honored tomorrow. You can visit its website to <a title="http://www.independent529plan.org/colleges/index.html" target="_blank" href="http://www.independent529plan.org/colleges/index.html">view participating institutions</a>.</p>
<p>Though the prepaid programs may not be available for your state or desired institution of higher learning, there are tax benefits that should place investigating, selecting, and funding a 529 Plan on a <strong>parents&rsquo; to-do list</strong>. Before you decide on which program to select, here&rsquo;s what&rsquo;s cool and what&rsquo;s quirky:</p>
<p><strong>Cool</strong></p>
<ul>
<li>Contributions may be <a title="http://www.kiplinger.com/basics/archives/2003/02/529faqs.html" target="_blank" href="http://www.kiplinger.com/basics/archives/2003/02/529faqs.html">state-tax deductible</a>.</li>
</ul>
<ul>
<li>Earnings (e.g., capital gains, interest, and dividends) grow <a title="http://www.kiplinger.com/magazine/archives/2007/08/1000529.html " target="_blank" href="http://www.kiplinger.com/magazine/archives/2007/08/1000529.html">tax deferred</a>.</li>
</ul>
<ul>
<li><a title="http://www.kiplinger.com/magazine/archives/2007/08/1000529.html " target="_blank" href="http://www.kiplinger.com/magazine/archives/2007/08/1000529.html">Withdrawals for qualifying educational expenses</a> (tuition, fees, and living expenses of students) are not subject to federal income tax.</li>
</ul>
<ul>
<li>529s are treated as parental assets for financial aid purposes.</li>
</ul>
<ul>
<li>Grandparents (and others) can fund 529 plans with no impact on the student&rsquo;s financial aid status.</li>
</ul>
<ul>
<li>If one child doesn&rsquo;t need any or all of the money, funds can be moved to other 529 accounts; Kiplinger has supplied a list of&nbsp;<a title="http://www.kiplinger.com/columns/ask/archive/2003/q0305.htm" target="_blank" href="http://www.kiplinger.com/columns/ask/archive/2003/q0305.htm">approved transfers</a> here.</li>
</ul>
<ul>
<li>Most 529 plans allow you to use&nbsp;funds for expenses at&nbsp;nearly any U.S. college or university.</li>
</ul>
<p><strong>Quirky</strong></p>
<ul>
<li>Individual states contract with third parties to manage programs. These&nbsp;firms offer investment options and&nbsp;pre-designed portfolios, some of which are age-based so that the stock/bond ratio converts from heavily weighted with stocks&nbsp;to&nbsp;heavily weighted with bonds as the beneficiary/student gets older and ready to use the money for college.&nbsp;</li>
</ul>
<ul>
<li>Some options are offered only through brokers; others are available for direct purchase. You can find either type using Kiplinger's <a title="http://www.savingforcollege.com/kiplinger/plan_details.php" target="_blank" href="http://www.savingforcollege.com/kiplinger/plan_details.php">plan locator</a>.</li>
</ul>
<ul>
<li>You can choose a plan sponsored by your state or you can invest in a plan sponsored by another state, though you will most likely forgo certain benefits (such as state income tax deductions) if you go with an out-of-state plan.&nbsp;</li>
</ul>
<ul>
<li>Contributions are not <a title="http://www.kiplinger.com/columns/taxexperts/archive/2007/04/0404.html" target="_blank" href="http://www.kiplinger.com/columns/taxexperts/archive/2007/04/0404.html">federal-tax deductible</a>&nbsp;and gifts are subject to federal gift taxes.</li>
</ul>
<ul>
<li>State income tax benefits differ widely and contribution limits vary by state.</li>
</ul>
<ul>
<li>There may be account maintenance fees (flat fees) and service charges (usually % of assets).</li>
</ul>
<ul>
<li>You can change plans but usually just once a year.</li>
</ul>
<p><strong>The real value of the 529&nbsp;Plan is that withdrawals for qualified educational expenses can be made free of federal income taxes.</strong> Remember to make sure that&nbsp;withdrawals don&rsquo;t exceed qualified expenses as&nbsp;any&nbsp;excess amounts&nbsp;will result in unearned income to the beneficiary (student). And if the money is not used for college, then&nbsp;earnings are taxed at your regular income rate plus 10%, according to <em><a title="http://www.kiplinger.com/magazine/archives/2006/10/college2.html" target="_blank" href="http://www.kiplinger.com/magazine/archives/2006/10/college2.html">The New Math of Paying for College</a></em>.</p>
<p>Now, that you've decided (most likely) to open a 529, which one should you choose? Kiplinger has <a title="http://www.kiplinger.com/features/archives/2007/08/best529s.html" target="_blank" href="http://www.kiplinger.com/features/archives/2007/08/best529s.html">state-by-state recommendations</a> with rationale for its recommendations that I found useful.</p>
<p>Here are factors to consider in selecting a plan (each will impact your college cash flow in some way):</p>
<ul>
<li>Availability of&nbsp;pre-paid plans&nbsp;in your home state or for your desired college/university;</li>
</ul>
<ul>
<li>State income tax benefits;</li>
</ul>
<ul>
<li>Account maintenance fees and service charges;</li>
</ul>
<ul>
<li>Potential investment returns.</li>
</ul>
<p>Though the 529 plans may not offer&nbsp;significant <em>immediate</em> benefits to all U.S. parents, investing now could yield great advantages to your tax bill and cash flow later. As state offerings (investment plans) change, you'll be wise&nbsp;to evaluate plans now and review your choices every year but the time (and money) invested should be worth it.</p>
<br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/julie-rains">Julie Rains</a> of <a href="http://www.wisebread.com/529-plans-for-college-expenses-what-s-cool-and-what-s-quirky">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-8">
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</div> </div><br/></br>Investment529529 savings plans529scollege savings plansprepaid tuition planssaving for collegeThu, 13 Sep 2007 17:59:31 +0000Julie Rains1152 at http://www.wisebread.com